Demand for high sulfur heavy fuel oil (HSFO) in Hong Kong slowed in November, leading to lower premiums for ex-wharf supply contracts for the fuel, according to several market sources. These premiums, applied to HSFO cargoes of 380 CST delivered in November to Hong Kong, ranged from $32 to $40 per tonne above Singapore’s FOB (Free on Board) value, compared to a range of $35 to $40 per tonne. per ton in October.
One of the main factors behind this decline is weakening demand for HSFO at the port of Hong Kong, where market conditions have deteriorated in recent months. Despite the stability of long-term contracts, one-off demands for heavy fuel oil are falling, as indicated by a trader based in Hong Kong.
Impact of reduced production and increased cost
In addition to falling demand, a reduction in HSFO production has also contributed to the situation. Due to declining profit margins, some refineries have decided to redirect their resources towards the production of other, more profitable refined products, leading to a decrease in the availability of HSFO. A Hong Kong fuel supplier said rising production costs are discouraging producers from continuing to supply the market. This decline in supply could potentially lead to a scarcity of stocks for the months to come.
Normalization of weather conditions in China
Previously, the Hong Kong HSFO market benefited from difficult weather conditions in the Chinese hub of Zhoushan, which caused the closure of external anchorages and halted barging operations at the port. This situation had temporarily increased the demand for HSFO in Hong Kong, as shipowners sought alternatives in the southern Chinese region for their fuel needs.
However, with the improvement of weather conditions in late October and the arrival of new HSFO cargoes at Zhoushan, refueling operations were able to resume. This recovery has led shipowners to return to Zhoushan, thereby reducing pressure on HSFO demand in Hong Kong, as confirmed by another trader based in the region.
Premium fluctuations and regional differences
According to data from S&P Global Commodity Insights, the average premium for 380 CST HSFO cargoes delivered to Hong Kong, compared to the FOB value of Singapore, reached $40.65 per tonne in November, recording a decline of 18. 2% compared to the average of $49.70 per tonne observed in October. Premium fluctuations indicate variation in regional preferences and competition among supply ports in South China.
The price difference between marine fuel oil delivered to Hong Kong and that delivered to Zhoushan increased slightly in November, reaching an average of $6 per tonne from $3.33 in October, according to the same data. This differential reflects the renewed attractiveness of the port of Zhoushan for shipowners, now that conditions there have stabilized.
Recent developments indicate that the HSFO market in Hong Kong is in the process of adjusting to regional production and demand dynamics, particularly in response to climatic and economic developments in China.
